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Income Tax Act 2007

Timing and quantifying rules - Hedging of currency movements in Australian non-attributing shares and attributing FDR method interests

EM 4: Elections

You could also call this:

“Choosing special tax rules for managing eligible hedges”

You can choose to use special rules for your eligible hedges. These rules are about the fair dividend rate hedge portions. If you don’t choose these rules, your hedges won’t be affected by this part of the law.

You have two ways to choose these rules. You can pick them for just one hedge or for all your hedges. You need to make this choice before you start using the hedge.

If you choose for just one hedge, you can’t change your mind later for that hedge. If you choose for all hedges, you can change your mind, but only before you start using a new hedge.

There’s also a special way to manage your hedges called the portfolio method. You can use this if you value your units every month or more often. If you pick this method, you have to stick with it for at least 2 years, unless the Commissioner says you can change sooner.

After using the portfolio method, you have to wait 12 months before choosing it again, unless the Commissioner lets you do it sooner.

Remember, these choices are about how you manage your hedges for tax purposes. It’s important to think carefully before making a decision.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM5502530.

Topics:
Money and consumer rights > Taxes
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EM 3: What hedges does this subpart apply to?, or

“Types of foreign currency agreements covered by this subpart”

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EM 5: Fair dividend rate hedge portions: hedge-by-hedge methods, or

“Calculating hedge portions for foreign investments using two different methods”

Part E Timing and quantifying rules
Hedging of currency movements in Australian non-attributing shares and attributing FDR method interests

EM 4Elections

  1. This subpart applies to a person’s eligible hedges, to the extent to which the hedges have fair dividend rate hedge portions as a result of an election under this section. The portion of a person’s eligible hedge that is not a fair dividend rate hedge portion does not give rise to income or expenditure under this subpart, despite any election under this section for the eligible hedge. To the extent to which this subpart does apply to calculate income and expenditure (see: section EM 6), the fair dividend rate hedge portion does not give rise to income or expenditure under any other subpart of this Act.

  2. A person may choose to use a hedge-by-hedge method under section EM 5 for an eligible hedge, if the election under this subsection is made before the hedge and any hedge of the hedge is first entered into or acquired by the person.

  3. A person may choose to use a hedge-by-hedge method under section EM 5 for all eligible hedges if the election under this subsection is made before the hedge and any hedge of the hedge is first entered into or acquired by the person. The choice applies for all eligible hedges post-election.

  4. An election under subsection (2) is irrevocable for the life of the relevant hedge, unless the person may choose and does choose, under subsection (6), to use the portfolio method.

  5. An election under subsection (3) may be changed before the relevant hedge and any hedge of the hedge is first entered into or acquired by the person, but is irrevocable for the life of the relevant hedge, unless the person may choose and does choose, under subsection (6), to use the portfolio method.

  6. A person that uses a unit valuation period, under section EX 53 (Fair dividend rate periodic method), of 1 month or less may choose the portfolio method under section EM 5B.

  7. An election under subsection (6) is irrevocable for 2 years unless the Commissioner notifies the person that the person may revoke earlier. An election applies for all eligible hedges post-election, but does not have to be made before a relevant hedge is entered into. Also, a new election under subsection (6) cannot be made until 12 months after the end of an old election under subsection (6), unless the Commissioner notifies the person that the person may make a new election earlier.

Notes
  • Section EM 4: replaced, on , by section 90 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).